BLOGS: Georgia IP Litigation

Georgia IP Litigation

The Georgia IP Litigation Blog monitors patent, trademark, copyright, and trade secret cases pending in Georgia federal district courts and in the U.S. Court of Appeals for the 11th Circuit, based in Atlanta. The blog alerts readers to initiation of such cases in the district courts and summarizes relevant orders and opinions from each covered court.

Wednesday, June 3, 2015, 3:28 PM

On May 20, 2015, Judge Dudley H. Bowen of the United States District
Court for the Southern District of Georgia, entered an order denying the
Motion for Preliminary and Permanent Injunction filed by one of the
plaintiffs (Christopher Hermann) and granting in part the motion for
dismissal and to compel arbitration filed by Defendant Unishippers
Global Logistics, LLC (“Unishippers”). Mr. Hermann’s motion sought to
prevent Unishippers from claiming that he was in violation of a covenant
not to compete agreement signed with MSA which had originally made
Unishippers a third party beneficiary (the “Non-competition Agreement”).
Mr. Hermann asserted the Non-competition Agreement was invalid and
unenforceable.

The case was initiated by one corporate
(Morning Star Associates, Inc.) and three individual franchisees
(collectively “MSA”) against their franchisor, Unishippers, following
the termination of three franchise agreements. MSA alleged several
claims largely based on Unishippers termination of the franchise
agreements under one provision and then pursing enforcement of
inconsistent, waived provisions. Both the franchise agreements and the
Non-competition Agreement contained arbitration provisions.

The Court noted that it “must ‘construe arbitration clauses generously, resolving all doubts in favor or arbitration.” Becker v. Davis,
491 F.3d 1292, 1305 (11th Cir. 2007). The author notes that the 11th
Circuit and the State of Georgia lead the country in enforcement of
arbitration provisions and hospitality to non-resident claimants and
their representatives. The Atlanta International Arbitration Society.[1]

MSA
challenged enforcement of the arbitration provisions on four grounds:
(1) the FAA exempts transportation workers, (2) the Non-competition
Agreement was waived or invalid, (3) Unishippers has no valid agreement
to arbitration, and (4) the claims are outside the scope of the
Franchise Agreements’ arbitration provisions.

The FAA
Exemption. The Court noted that the asserted exemption was to be
“narrowly construed to apply only to ‘transportation workers; and not to
employment contracts in general,” quoting Hill v. Rent-A-Center, Inc.,
298 F.3d 1286, 1289 (11th Cir. 2005). Noting again that “the Eleventh
Circuit has been exceptionally clear about one thing; ‘[A]ll doubts are
to be resolved in favor of arbitration,’” the Court found that MSA had
not proven employment status (and found as a matter of law to the
contrary). Ruby-Collins, Inc. v. City of Huntsville, Ala., 748
F.2d 573, 576 (11th Cir. 1984). Similarly, the Court found no
employer-employee relationship between Mr. Hermann and Unishippers based
on the Non-competition Agreement between Mr. Hermann and MSA (of which
Unishippers was a terminable third-party beneficiary). Reinforcing its
decision, the Court found that Mr. Hermann as a freight broker was not a
transportation worker as required for the exemption and the
eight-factor test to meet the relation to interstate commerce
requirement had not been met.[2]

The Court found that
the other three arguments raised by MSA were controlled by the fact the
Franchise Agreements and the Non-competition Agreement all contained a
delegation provision, conferring authority on the arbitrator to resolve
disputes of enforceability (including whether the agreement is void or
voidable). Citing Rent-A-Center, West, Inc. v. Jackson, 561 U.S.
63, 70-71 (2010), the Court noted that the arbitration provision is
severable from the remainder of the contract and, therefore, the
delegation provision is unaffected by assertions the underlying
contract, was void, terminated, voidable, or even that the dispute was
exempted from the arbitration provision’s application.

Despite
the Court’s unequivocal adherence to the legal compulsion of
arbitration for all issues under the law,[3] the Court did pause to note
that “the Non-Competition Agreement is clearly void under applicable
Georgia law.” Query whether many arbitrators would ignore this comment
when it is placed before them during the arbitration.

The case is Morning Star Associates, Inc. v. Unishippers Global Logistics, LLC,
No. 1:15-cv-033-DHB, 2015 WL 2408477, entered 05/20/15 by Judge Dudley
H. Bowen in the U.S. District Court for the Southern District of
Georgia, Augusta Division.
--------------------------
[1] The
author is a member of the Executive Board of the Atlanta International
Arbitration Society.[2] The
eight factors as set forth in Lenz v. Yellow Transp., Inc., 431 F.3d
348, 351 (8th Cir. 2005), are:(1) works in transportation industry; (2) directly responsible for
transporting goods; (3) handles goods that travel interstate; (4) supervises
other transportation workers; (5) is within a class for which special
arbitration already existed when FAA enacted; (6) vehicle itself is vital to
commercial enterprise of employer; (7) strike by specific individual would
disrupt interstate commerce; and (8) there is a nexus between employee and
vehicle he utilizes necessary to perform job.[3] The
Court noted in beginning its Conclusion, “the Court is obliged to adhere to the
strong federal policy of the FAA encouraging the enforcement of arbitration
provisions.”